Episode #1 of the course “Brief History of Economic Thought”
Global economic policy took a drastic turn during the 16th century. A rising merchant social class, which was organized by trades into professional guilds that represented specific industries, developed international trade like never before. This created a shift in Europe from a system that had functioned on a basis of subservience—the Medieval “feudal” system—to one that intermingled politics and trade in a new way.
Because Medieval and early Renaissance sovereigns still saw the merchants’ products as belongings of the crown, the value of internationally-traded items became highly important by the 17th century. In the system of mercantilism, sovereign powers declared the absolute economic policy of their realm, often causing a pattern of effects. The kings began to hoard the items they considered precious, and placed strict controls on international trade routes, shipments, tariffs, and quotas.
Mercantilism extends the economic theory of bullionism, based in the values of exchange rates of precious metals. Because each country wanted to obtain a vast treasury through trade, extended wars and colonial expansion became common. Countries acquired more resources by taking them from others. Additionally, countries in a mercantilist system had high trade taxes, and they attempted to maintain strict market monopolies. Countries began to be known as solitary producers of certain goods. In order to maintain that identity, the people who lived within the country were often not allowed to purchase or consume the goods that were intended for exportation.
The most famous mercantilist economic theorist of the 17th century was Jean-Baptiste Colbert, who served as personal economic advisor to King Louis XIV of France. Colbert worked to create a surplus in France’s treasury, despite the contributions that his trade policies made to France’s involvements in various wars. Colbert also established the Merchant Marine in an attempt to secure his trade routes, and instituted a number of regulations on industry guilds.
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